Company Car and Fuel Benefit: 2026/27 Tax Guide
How company car and fuel benefit-in-kind tax works in 2026/27, who pays it, how to estimate your bill, and when an electric or salary-sacrifice car wins.
Quick answer
A company car you can use privately is taxed as a benefit-in-kind. You pay Income Tax on a "taxable value" equal to the car's P11D list price multiplied by an HMRC percentage based on CO2 emissions. Electric cars carry the lowest percentage and are the cheapest to run for tax. Free private fuel is a separate charge and is usually poor value.
How company car tax actually works
When your employer gives you a car you can drive for private journeys, HMRC does not see the car as a gift - it sees it as extra income. Rather than tax you on cash you never received, it taxes you on a calculated "taxable value", also called the benefit-in-kind (BIK) value.
The formula has two parts:
- The car's P11D value - broadly the list price when new, including VAT, delivery and most optional extras, but excluding the first registration fee and vehicle tax.
- The appropriate percentage - a figure set by HMRC each tax year based on the car's CO2 emissions (and, for plug-in hybrids, the electric-only range).
Multiply the two together and you get the taxable value. You then pay Income Tax on that value at your marginal rate. For 2026/27 in England, Wales and Northern Ireland that means 20% for basic-rate taxpayers (taxable income GBP 12,571 to GBP 50,270), 40% in the higher-rate band (GBP 50,271 to GBP 125,140) and 45% above that. Scottish taxpayers use the Scottish bands, which run from 19% up to 48%.
A worked example of the mechanism
Suppose a car has a P11D value of GBP 40,000 and the HMRC percentage for its emissions is, for illustration, 30%. The taxable value would be GBP 40,000 x 30% = GBP 12,000. A higher-rate taxpayer paying 40% would owe GBP 4,800 in tax for the year, or GBP 400 a month through their tax code. A basic-rate taxpayer paying 20% on the same car would owe GBP 2,400.
Swap that for an electric car on the lowest percentage and the taxable value falls dramatically - which is the whole reason EVs dominate company fleets. Because the actual percentage depends on your specific vehicle, run your own numbers using the published rate and our
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Open Income Tax calculatorWho pays what
There are two separate tax charges to keep straight:
| Charge | Who pays | Based on |
|---|---|---|
| Income Tax on the car benefit | You (the employee) | P11D value x percentage x your marginal rate |
| Class 1A National Insurance on the car benefit | Your employer | The same taxable value, at the employer NI rate |
| Income Tax on free private fuel | You (the employee) | Fuel multiplier x percentage x your marginal rate |
| Class 1A NI on free private fuel | Your employer | The fuel benefit value |
You never pay employee National Insurance on the car or fuel benefit - Class 1 employee NI only applies to your cash earnings. For reference, in 2026/27 employee Class 1 NI is 8% on earnings between GBP 12,570 and GBP 50,270 and 2% above that. Your employer pays Class 1A on benefits at the employer rate. You can see how your cash earnings are taxed with our
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Calculate your National Insurance contributions for 2025/26.
Open National Insurance calculatorThe fuel benefit trap
If your employer pays for the fuel you use on private journeys and you do not fully reimburse them, that is a separate benefit-in-kind. The charge is worked out by multiplying a fixed "car fuel benefit multiplier" - a figure HMRC sets each year - by the same CO2 percentage used for the car. You then pay Income Tax on the result at your marginal rate.
The catch is that the multiplier is a flat figure regardless of how much private fuel you actually use. Drive only a few private miles a year and the tax can easily exceed the value of the fuel. As a rule of thumb, free private fuel only makes sense if your private mileage is very high. Many drivers are better off paying for their own private fuel and reimbursing the employer for it.
Why electric cars win on tax
Electric company cars carry the lowest appropriate percentage of any vehicle type. The percentage for zero-emission cars does rise gradually each tax year, but it remains far below the rates for petrol and diesel. Combine that with:
- no fuel benefit charge for electricity,
- low running and maintenance costs, and
- favourable treatment under salary sacrifice,
and an EV can be dramatically cheaper than an equivalent petrol car or a taxable cash allowance.
Salary sacrifice and EVs
Under a salary sacrifice scheme you give up part of your gross salary in exchange for the car. Because the sacrifice is from pre-tax pay, you save Income Tax and National Insurance on the amount given up. For most cars there is an "optional remuneration" rule that taxes the higher of the BIK value or the salary sacrificed - but zero and ultra-low-emission cars are exempt from that comparison. That exemption is why nearly every salary-sacrifice car scheme pushes electric vehicles.
You still pay BIK on the EV, but because the percentage is so low, the combined saving on the sacrificed salary plus the small BIK charge usually beats running a personal car from taxed income. Use our
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Open Take-Home Pay calculatorCompany car versus cash allowance
Some employers offer a cash car allowance instead of a company car. The allowance is taxed as ordinary salary, so you pay Income Tax and employee NI on it, and then you fund a car yourself.
A company car works best when emissions are low. A low-emission or electric car generates a small BIK charge and no fuel benefit, so the tax is modest and the employer handles maintenance and insurance. A cash allowance plus a personally owned car can win for high-emission vehicles, where the BIK charge would be punishing, and it gives you freedom to choose and keep the car. With your own car you can also claim AMAP mileage for business journeys.
The mileage point matters. If you drive your own car for work, you can claim Approved Mileage Allowance Payments (AMAP) at 45p per mile for the first 10,000 business miles in the tax year, then 25p per mile after that. Motorcycles are 24p and bicycles 20p per mile. With a company car you cannot claim AMAP - instead you use HMRC's lower Advisory Fuel Rates to reclaim business fuel, or your employer reimburses at those rates.
| Option | Tax on the benefit | Mileage you can claim | Best for |
|---|---|---|---|
| Company car (EV or low CO2) | Low BIK | Advisory Fuel Rates only | Most drivers, especially EV |
| Company car (high CO2) | High BIK | Advisory Fuel Rates only | Rarely the best choice |
| Cash allowance + own car | Taxed as salary | AMAP 45p / 25p | High-emission needs, low business mileage at scale |
How the tax reaches your pay packet
Company car tax is almost always collected through PAYE. HMRC reduces your tax-free Personal Allowance (GBP 12,570 for 2026/27, frozen until April 2028) by the taxable value of the benefit. The result is a lower tax code, and in cases where the benefit exceeds your allowance you may see a "K" code, which adds taxable income rather than subtracting it.
If your car changes, or you start or stop receiving free fuel, tell HMRC promptly. Otherwise your code can be wrong all year, leaving you with an underpayment to settle or a refund to chase. Watch out for the high-income tapers too: once your total income passes GBP 100,000, your Personal Allowance is reduced by GBP 1 for every GBP 2 above that, creating an effective 60% marginal rate between GBP 100,000 and GBP 125,140. A large car benefit can push you into that band.
Practical checklist before you accept a company car
- Get the exact appropriate percentage for the specific car from gov.uk - never estimate.
- Find out the car's P11D value, including the options you want, as extras raise your tax.
- Decide whether to take free private fuel - usually decline it unless your private mileage is very high.
- If it is an EV, ask about salary sacrifice, which compounds the savings.
- Model the cash allowance alternative, including AMAP mileage at 45p, if you do high business miles in your own car.
- Check whether the benefit pushes your income near GBP 100,000 and the 60% allowance taper.
The bottom line
Company car tax is straightforward in principle: list price times a CO2 percentage times your tax rate. The detail that decides whether it is a good deal is the percentage, and that is set entirely by emissions. Electric cars carry the lowest figure and avoid the fuel benefit charge altogether, which is why they remain the standout choice for 2026/27. For higher-emission cars, run the numbers against a cash allowance before you sign.
Whatever you choose, confirm the current figures on gov.uk and model the tax at your own marginal rate with our
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Work out how much income tax you owe using the latest 2025/26 UK tax bands.
Open Income Tax calculatorFrequently asked questions
What is a company car benefit-in-kind?
A company car available for private use is a taxable benefit-in-kind (BIK). HMRC treats it as extra income: you pay Income Tax on a 'taxable value' calculated from the car's list price multiplied by a CO2-based percentage. Your employer also pays Class 1A National Insurance on the same value. The car itself is not cash, but the tax is real and is usually collected through your PAYE tax code each month.
How is the taxable value of a company car worked out?
The taxable value is the car's P11D list price (including most options and delivery) multiplied by an 'appropriate percentage' set by HMRC based on the car's CO2 emissions and, for plug-in hybrids, electric range. Electric cars carry the lowest percentage and the rate rises with emissions. You then pay Income Tax at your marginal rate (20%, 40% or 45%) on that taxable value. The exact percentages are published by gov.uk and change each tax year.
Do I pay tax on free fuel from my employer?
Yes. If your employer pays for fuel used in private mileage and you do not fully reimburse them, that is a separate fuel benefit. It is calculated by multiplying a fixed 'fuel benefit charge multiplier' (set by HMRC each year) by the same CO2 percentage used for the car. Free private fuel is often poor value unless your private mileage is very high, because the tax can exceed the fuel's actual cost. There is no fuel benefit charge for pure electricity.
Are electric company cars still tax-efficient in 2026/27?
Electric cars remain the most tax-efficient company car choice because they carry the lowest BIK percentage. The percentage for zero-emission cars rises gradually each year, but it stays far below petrol and diesel rates. Combined with no fuel benefit charge for electricity and lower running costs, an EV through salary sacrifice can be substantially cheaper than a cash allowance. Always confirm the current year's percentage on gov.uk before committing.
How is company car tax collected?
Company car tax is normally collected through your PAYE tax code. HMRC reduces your tax-free Personal Allowance by the taxable value of the benefit, so more of your salary is taxed each month. You will see this as a lower tax code (for example, a 'K' code in extreme cases). If your circumstances change mid-year, tell HMRC so your code is corrected and you avoid an underpayment or refund at year end.
Is a company car better than a car allowance?
It depends on the car's emissions, your mileage and your tax rate. A low-emission or electric company car often beats a taxable cash allowance because the BIK tax is small. For high-emission cars, a cash allowance plus a personally owned car can work out cheaper, and you can claim AMAP mileage at 45p per mile for the first 10,000 business miles. Model both options before deciding.
Can I claim mileage if I have a company car?
If your employer does not provide fuel, you can usually claim back business mileage at HMRC's Advisory Fuel Rates, which differ from the 45p AMAP rate used for privately owned cars. The 45p first 10,000 miles then 25p AMAP rates apply only when you use your own car for work. With a company car, the lower advisory rates apply. Keep a detailed mileage log to support any claim.
Does salary sacrifice change the company car tax?
Salary sacrifice lets you give up gross salary in exchange for a company car, saving Income Tax and National Insurance on the sacrificed amount. For most cars the taxable benefit is the higher of the BIK value or the salary given up, but zero and ultra-low-emission cars are exempt from this comparison, which is why EVs dominate sacrifice schemes. You still pay BIK on the car, but the net saving can be large for an EV.
What is the P11D value of a car?
The P11D value is the figure HMRC uses for the company car tax calculation. It is broadly the car's list price when new, including VAT, delivery and most factory-fitted optional extras, but excluding the first registration fee and road tax. It is not the price your employer actually paid or any discount they received. A higher P11D value means a higher taxable benefit, so options add to your tax bill.
Where can I find the exact BIK percentages for 2026/27?
The appropriate percentage table is published by HMRC on gov.uk and is updated each tax year. Because the figures are tied to a car's exact CO2 emissions and, for hybrids, electric-only range, you need the specific band that matches your vehicle. We deliberately do not reproduce a full band table here, as small errors are costly. Check gov.uk or ask your employer's fleet provider for the figure that applies to your car.
Try the calculators
Income Tax Calculator
Work out how much income tax you owe using the latest 2025/26 UK tax bands.
Take-Home Pay Calculator
Calculate your net salary after income tax, National Insurance and student loan deductions.
National Insurance Calculator
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Related reading
Company Car vs Car Allowance in 2026: Which Leaves You Better Off?
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Car Allowance vs Company Car UK 2026 — Which Is Worth More After Tax?
Car allowance vs company car UK 2026: worked tax examples for cash, petrol, and EV options. BiK rates, AMAP rules, and when the allowance wins after tax.
Car-Derived Vans: How HMRC Classifies Them for Tax in 2026/27
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